About The Beta Brief

I am a participant in the investment management industry and have been since 1995. Although most of my experience might be classified within that of “hedge funds”, my interests lie in the broader field of alternative investments and how they, in aggregate, fit within an even broader and globally diversified portfolio. Despite this background, this blog is about beta. Why? Simply put, although I may be striving to achieve some return that outperforms a benchmark, and hopefully most of the competition, I believe that this “alpha” is best achieved by first understanding beta. In fact, in most of my past work, even though the mandates may be highly alpha-oriented, the means by which we implement our ideas is through instruments which allow for broad market exposure (beta). Furthermore, we are at a time when instruments focused on beta are becoming ever more readily available to ALL investors allowing for a multitude of investment strategies. If there is an asset allocation spectrum with rigid, policy allocations at one extreme and highly active global macro/GTAA at the other, beta instruments such as ETFs and derivatives allow for implementation at every point on this line. Coverage of these instuments, analysis of strategies using them and discussions on other related industry developments are what this blog is all about.

What follows is my first official entry on this blog as of February 28, 2007:

Although this is technically a new blog and I consider myself to be a fairly novice blogger, I’ve been writing for a while. Maybe this exercise is simply an attempt to prove to myself that I am still technically competent. Who am I kidding … I had to hire someone to deal with what’s under the hood in this machine called WordPress (blogging software program).

I’ve been a contributor to the Seeking Alpha website for well over eight months but it seems much longer than that. It’s a great gig with fantastic traffic. I bump into people at industry conferences or similar events who recognize me by name or goofy photo. For the initial launch of my own blog, I have simply conducted a quick import of all my work from Seeking Alpha. Since I am a full time participant in the investment management industry and not in the blogging industry, the content on this blog will likely overlap with my work on Seeking Alpha. I have no idea if having my own blog will cause events leading to my involvement with other websites, newsletters or other forms of media. We’ll see. As I said, I’ve been writing for a while so somewhere in the columns to the left you’ll find a link leading you to PDF files with copies of my past work outside of Seeking Alpha.

With regard to this site and its future … who knows. Hey, it’s blogging. Have they even built MBA case studies for this yet? I won’t say I’m early or late into the world of blogging. I’ve seen that there are quite a large number of participants in this space although not too many in the area of beta, and further less still in this subset who actually manage money or investment management companies (sometimes they’re not the same). I suspect with little doubt that this will soon become a very crowded area.

What you will likely see on this site are a bunch of postings whose headings all have the term “ETF” in them. We’re clearly in the midst of an ETF explosion and so part of my job, I feel at least for now, is to keep up with developments in this space.

However, if this site is to be truly about “beta” then I must cover other instruments that allow for market exposure and this would definitely cover the derivative markets as well as index mutual funds although I’ll focus more on the former than the latter mainly because of my professional background. Closed end funds aren’t pure beta plays but I might throw them in as an exchange traded alternative when called for. Of course, underlying these instruments are indices which are also showing signs of major evolution. I will cover their progression as well. Overall, this is an evolving space with no well defined perimeter, so the universe may contain more than this.

If “beta” instruments allow for market exposure than on the other side of the spectrum is the polar opposite of “alpha” instruments. Actually, “alpha strategies” is more appropriate a term. Here we’re talking about hedge funds, the inappropriate term that it is. Alternative investments? Absolute return strategies? Well, we’re clearly talking about something that’s not your plain vanilla, long only exposure common to the ETF space … never mind inverse ETFs for now.

The synchronized growth of ETF with the hedge fund space can’t be a coincidence and I have gone to great lengths to repeatedly cover this in the past and will continue to do so.

Bottom line: The alternative investment space is getting blurry. Hedge funds invest in real estate deals, commodity markets, infrastructure projects, public markets as well as private. These all used to be considered asset classes but it’s getting harder to determine what’s what. Furthermore, ETFs exist or will soon exist for these areas which were once solely the domain of hedge funds. Perhaps hedge funds is too much of a focus. Let’s just say that active management within ETFs is a development that will eventually come to this industry. But I think it will eventually go all the way to the extreme of active management: hedge funds. But again, I think the key point here is that hedge funds are big users of beta instruments including ETFs because it’s these types of instruments that provides the multitude of market exposures that these active managers seek. Does this mean every investor can and should become a hedge fund? Hardly. But if hedge funds (or those in the broader defined alternative investment space) are significant users of beta instruments, then we must think about their impact. Perhaps more fun is simply to consider how to manage beta instruments in a “alpha oriented” manner. Hey, perhaps the way to alpha nirvana is by mastering beta. Not a new concept and it sounds a bit on the philosophical side but there’s definitely something in there worth considering. Frankly, I see many “portfolio management solutions” revolving predominately, or even exclusively, through the use of ETFs and/or index funds, especially as a replacement to mutual fund wrap programs. I don’t see why one should be limited in this fashion. More important to this website is the fact that more innovate uses for beta is what we’re all about. I’ll be digging deep, but not too deep with my blog analysis because there’s just not enough space/time to do so … plus you’re not paying me enough.

And you’re not paying me because we don’t have the kind of relationship of that between a client and a fiduciary. Oh, what a sweet segway into this short notice of the “Terms and Conditions” as well as “Privacy Policy” links both found near the top left of every page on this site. By reading this or any other part of this blog website, you’re accepting these terms and conditions and related policies. Let me be perfectly blunt here: I don’t know who you are. I know nothing of your financial affairs, present/future liabilities, portfolio objectives, nothing. Thus, I can in no way determine what is a suitable investment for you. As an extension, I can not know what is a suitable portfolio for you. Don’t take any of my blog entries as advice specific to you. If you do, and you also take the advice of people on other blogs, newspaper articles, TV shows, your dentist or the business section taped onto your dartboard, all to determine the course of action related to the ongoing management of your portfolio … well I only have one thing to say. Please send me your portfolio returns on a monthly basis, going back in time as far back as possible in Excel format (net of trading costs but use the Modified Dietz calculation to deal with cash flow issues). The efficient market theory is still a theory until we get more people like you providing good data.

If you somehow feel like the above comments may apply to you, you may want to think about finding a professional (financial advisor, palm reader, it’s up to you) to assist. Relying on a pro to deal with your health issues, legal issues and yeah, maybe even money issues, might not be bad especially if you don’t have the adequate resources (medical degree, time, etc.) to do things yourself. If this or the above paragraph is in any way unclear to you, please do refer to the “Terms and Conditions” section of this site where the legal language is oh so much more better on the eyes. I also do hope that those with a strong interest in the areas I cover register to this site to receive updates and occasional goodies. I don’t know what these goodies might be, if any, so for now consider “updates = goodies”.

Every blogger hopes to build a strong following so in return for reading my stuff, a humble request I ask in return. Pretty simple really. If you read my stuff and you like it, pass it on to someone else or even more than one person. I hope to have a function at the end of each entry to allow you (if registered) to forward the piece to someone else via email. Better yet, if you think someone will appreciate the material, send them the general link to the site.

Equally as important is the other side of the equation. If you don’t like what I write, feel equally free not to spread the word. But if you are here visiting my blog, and whether you like what you see or not, please let me know. Constructive criticism is highly appreciated as well as opinions that differ from mine. Although I see this blog as more of a hobby than a vocation, I simply hope that you enjoy and value its content and I look forward to your feedback. Send me links to news you think I might find interesting enough to post or comment on. Ask me about certain specific markets and you might even get me to make a market call. But what I find the most fun, although I have not focused too much on it in my past blog work is pure strategic thinking. How do you apply a particular beta instrument, or group of instruments in a certain situation, for a particular sector or geographic region at a particular time. That’s what my brain has been focused on career-wise for the past 12 years or so. And hopefully, for many more years to come.